Financial Aspects to Consider Before You Decide to Buy a Home
Buying a home is one of the major financial decisions that we make in our lifetimes. This not only involves careful planning but since the start and till the end, this entire process can demand a lot of time and attention throughout, and if you don’t want to be conned or get trapped into some kind of fraudulent activities you want to take every step carefully and through a proper calculated decision. Buying a house can impact a person for as long as 30 years of their lives into the future and hence one who wants to take this decision owes themselves a look at the things that they should take into consideration before taking this decision. So let us begin:
As a house is a single biggest financial investment someone makes in their entire lifetime, you must find whether or not you can afford it. Ask yourself, “Can I afford this?” A simple way to find whether you can afford something is by looking at your after-tax income. So the trick is very simple to go about, just look at your after-tax income and find out whether the monthly cost that you are going to bear in buying this house is below or above 25% (twenty-five percentage) of you after-tax income. If it is below 25% of your after-tax income, then go ahead and buy it! But if it is above 25% of your after-tax income then find a way to increase your monthly income.
- MORTGAGE AND INTEREST RATES
Mortgage rates are very important to consider, especially when this is the thing that is going to impact your monthly expenses in such a massive way. At this time, these rates go about 7-12 percentage and will vary positively, if you identify into one of the under-privileged sections of the society. Other government schemes may come in handy during finalizing these percentages and can help you minimize the costs. However, because this percentage impacts the daily “disposable income” directly, you want to make that come down as low as possible.
- THE CARRYINGOUT COSTS
The carrying out costs, basically refer to the cost of carrying out the business. Because when we do business, there are costs of carrying out the business. For example, the cost of hiring a broker that might help you find your dream home, or a CA that might help you get all the financial aspects out of place are all the costs that you might want to consider while buying a home because these are going to add and hence you want to make sure you do not end up paying a lot more than what you thought you would.
- YOUR CASH FLOW
Get some professional help to help you make some clear projections of the monthly cash flow that you might be enjoying. They may also be able to give you valuable get you a third-perspective point of view of the situation and help not only help you judge whether the cash flow is enough to sustain the lumpy monthly expense of the mortgage but also advise you on what would be the best way to track and use your money more wisely.
- RESALE VALUE
The world is a global home right now, thanks to globalization. Most people move every year for different reasons and jobs and marriages act as two main catalysts to it. Hence the reselling price of the house should be considered carefully. You might move out or want to sell the property for some reason in the future and to be in good profits and avoid losses you need a good projection about what the property might cost in the span of two to four years if the yearly appreciation rate is hard to find.
- TAX BREAKS
Usually, tax breaks are what induces people to own a property in this era of globalization. Tax breaks make is more affordable to own a house and you might not think that this may be that helpful but it certainly can be! In India, the tax-break for owning a self-occupied house can give you relief of up to two lakh rupees (2,00,000 rupees). However, if the property is jointly owned then both the owners can claim a two lakh rupee concession each, which adds up to four lakh rupees ( 4,00,000 rupees).
- YOUR CREDIT SCORE
This is the point where everything can either go up or everything could all crumble down. To put it simply, the better your credit score the lower your interest rate could go. Yes! That’s how much influence you can have over an interest rate before it is finalized, only if you have a good credit score. You should focus on all the means possible that may help you boost your credit score to the highest while looking to buy a property. Although this is not something that you can build over days or even months you should certainly be careful about your credit score since the very beginning. If you take a little care and keep your credit score high always then you could save thousands of rupees of interest money. However, a lower interest rate would mean that you put the bank at a higher risk of not being able to return their money back and so they are going to charge you with a higher interest rate in this case. Hence you should be diligent with any borrowed money that might be linked to the bank and pay them on time to be in the good books of the bank and avoid paying money unnecessarily.
- DELINQUENT ACCOUNTS
If your credit records show that you have been delinquent with your loans and borrowed money then, you might not get approved for a loan in the first place, and if they do, then your interest rate could be exponential, which makes the house too pricey and turn just about any good deal into a bad one. If you have any charged-off or delinquent accounts, get those payments current or settle the debt with the lender or the collection agency. You want to make a history of records that scream to the banks that you are reliable and you will pay off their money on time. That’s the kind of history they like and that’s the kind of history you want to make sure you have! The other alternative that you might use if you are going to buy a house any way despite your bad debt record would be if you save up your money in cash and use the cash instead. It’s a long process but could be worth it.
- ANCILLARY COSTS
Ancillary costs are the costs that are tolerated just to own something. At most times we only think of its retail price of something, but we often forget about the costs of keeping it in viable working conditions. For example, if you own a car, you think of how you can afford it but do you always think about costs like the maintenance costs, the repairing costs, the replacement of old parts costs. So everything that we own has some costs for owning it. Similarly, a house can have a lot of other maintenance costs that you might not have thought of at first. If you have some experience in buying a house then great! Because your experience can come handy now! However, if you are a new home buyer then take some help from people who might have bought a house earlier like your dad or uncle and leverage their experience!
Before you go about all this, find whether or not you need to own a house. Think in terms of whether buying or renting is more viable for you and decide accordingly.